Some say volatility, rather than debt, is the best way to think about risk as an investor, but Warren Buffett famously said that 'Volatility is far from synonymous with risk.' So it seems the smart money knows that debt - which is usually involved in bankruptcies - is a very important factor, when you assess how risky a company is. We note that Growens S.p.A. (BIT:GROW) does have debt on its balance sheet. But should shareholders be worried about its use of debt?
When Is Debt Dangerous?
Debt assists a business until the business has trouble paying it off, either with new capital or with free cash flow. If things get really bad, the lenders can take control of the business. However, a more common (but still painful) scenario is that it has to raise new equity capital at a low price, thus permanently diluting shareholders. Of course, plenty of companies use debt to fund growth, without any negative consequences. When we examine debt levels, we first consider both cash and debt levels, together.
What Is Growens's Debt?
The image below, which you can click on for greater detail, shows that at June 2025 Growens had debt of €5.92m, up from €4.12m in one year. However, it does have €2.40m in cash offsetting this, leading to net debt of about €3.52m.
A Look At Growens' Liabilities
We can see from the most recent balance sheet that Growens had liabilities of €22.0m falling due within a year, and liabilities of €4.30m due beyond that. On the other hand, it had cash of €2.40m and €17.7m worth of receivables due within a year. So its liabilities total €6.18m more than the combination of its cash and short-term receivables.
Of course, Growens has a market capitalization of €38.5m, so these liabilities are probably manageable. But there are sufficient liabilities that we would certainly recommend shareholders continue to monitor the balance sheet, going forward. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately the future profitability of the business will decide if Growens can strengthen its balance sheet over time. So if you're focused on the future you can check out this free report showing analyst profit forecasts.
View our latest analysis for Growens
In the last year Growens had a loss before interest and tax, and actually shrunk its revenue by 3.4%, to €74m. We would much prefer see growth.
Caveat Emptor
Over the last twelve months Growens produced an earnings before interest and tax (EBIT) loss. Indeed, it lost €3.8m at the EBIT level. Considering that alongside the liabilities mentioned above does not give us much confidence that company should be using so much debt. Quite frankly we think the balance sheet is far from match-fit, although it could be improved with time. However, it doesn't help that it burned through €4.3m of cash over the last year. So in short it's a really risky stock. There's no doubt that we learn most about debt from the balance sheet. However, not all investment risk resides within the balance sheet - far from it. To that end, you should learn about the 3 warning signs we've spotted with Growens (including 1 which is a bit concerning) .
At the end of the day, it's often better to focus on companies that are free from net debt. You can access our special list of such companies (all with a track record of profit growth). It's free.
Valuation is complex, but we're here to simplify it.
Discover if Growens might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
Access Free AnalysisHave feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.